Macro snapshot — South Korean economy speeds up; BOJ agreed on need for low rates; BoE to raise rates by 25bps

CAIRO: Spain’s industrial prices went up by 43.2 percent year-on-year which is down from 43.6 percent in May; Japan’s central bank agreed on the need for low rates; South Korea’s economy unexpectedly sped up indicating the possibility for more rate hikes, whereas England’s central bank is expected to raise its rates by a moderate 25bps on August 4th.

Spanish industrial prices rise 43.2 percent 

Spain’s 12-month industrial price increase slowed down for the third month in a row in June as energy inflation slowed again, the National Statistics Institute said on Tuesday.

Spanish industrial prices rose by 43.2 percent in June in the 12 months through June, slightly down from 43.6 percent for the period through May. Overall industrial prices rose 1.9 percent in June, INE reported.

The industrial production price 12-month inflation peaked at an all-time record of 47 percent in the period through March.

BOJ agreed on need for low rates

Bank of Japan policymakers saw wage hikes as key to sustainably achieving their 2 percent inflation target, minutes of the June meeting showed, underscoring the bank’s resolve to keep interest rates ultra-low despite growing signs of price pressure.

Some in the nine-member board saw price rises broadening and leading to changes in long-held public perceptions that inflation and wages would not rise much in the future, according to the minutes released on Tuesday.

But the members agreed the economy needed massive monetary support to weather the hit from rising commodity prices and supply disruptions caused by China’s COVID-19 lockdowns.

“The board agreed that uncertainty surrounding Japan’s economy was extremely high,” the minutes showed.

South Korea’s economy unexpectedly speeds up

South Korean economic growth unexpectedly picked up in the second quarter as strong consumption on eased COVID-19 restrictions offset poor exports, supporting the case for further central bank interest rate hikes.

According to the Bank of Korea estimate released on Tuesday, gross domestic product for the April-June period rose 0.7 percent quarter-on-quarter, faster than the 0.6 percent growth in the first quarter and above a 0.4 percent rise tipped in a Reuters survey.

Economists said the upbeat data allowed the central bank, which this month delivered an unprecedented 50 basis-point rate hike, to continue tightening policy in the coming months.

“The economy will inevitably slow due to prolonged inflation and cooling exports, but today’s solid readings are a good boost for the central bank, seeing inflation as the prime risk for now,” said Chun Kyu-Yeon, an economist at Hana Financial Investment.

Bank of England to raise rates by 25bps on Aug. 4

The Bank of England will likely shy away from a bigger interest rate rise in August and instead stick to the more modest 25 basis point increases it has been delivering, but it is a very close call, a Reuters poll of economists found.

The BoE is grappling with four-decade-high inflation, driven in large part by global pressures related to supply-chain disruptions and high energy prices. That has become a cost of living crisis, now pushing up the chances of recession.

Britain’s central bank was the first among its major peers to begin hiking rates in the current cycle, lifting the bank rate five times since December from its pandemic low of 0.10 percent to where it currently sits at 1.25 percent.

(With input from Reuters)